Dairy farmers’ profit alert after volatility

Andrew Vickery said most dairy farmers had been hit by the falling prices.

Published:15:16Thursday 18 August 2016

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Dairy farmers’ net profits fell by around 25% in the year to March 2016, and could fall further this year, according to farm accountant Old Mill.

Non-aligned milk prices dropped by around 4-6p/litre over the year, compared with 2014/15, meaning profits typically fell by more than 25%, says head of rural services Andrew Vickery.

He said: “However, profits have been extremely volatile and some producers will have suffered far greater losses.”

Supermarket-aligned suppliers fared rather better, with price cuts of between 1p and 4p/litre.

Even so, the average price on some supermarket- aligned contracts fell by more than the cost of production.

Mr Vickery added: “As a result, almost all producers – whoever they supply – have endured a large hole in profits and a steep drop in turnover, which in many cases has translated into serious cash flow problems.”

Although there are signs of an uplift in milk price, producers should not expect a rapid improvement in profitability in 2016/17, warns Mr Vickery. “At the start of the 2015/16 milk year prices were in the high 20s – even if they improve by 4p/litre the 2016/17 average may not look any better.

“And while cereal feed prices remain low, the weaker pound is making imports; particularly of proteins like soya, more expensive.”

That said, it’s not all doom and gloom. “Many people have survived the troughs and will come out with a leaner, more efficient business that will make good profits in the future,” Mr Vickery said.

“There has been a lot of belt-tightening, and the key is not to let costs of production rise again as the milk price improves.”